Government Failure Explained

Politicians, voters and bureaucrats all are incentivized to fail

George Noga
Oct 20, 2024

Public choice theory is a branch of economics that studies taxation, public spending and government decision making. Its leading proponents have won Nobel Prizes in Economics. Public choice economics applies the same rigorous logic and analysis to the government that economists use in analyzing the private sector. Although actors in the public space may have some interest in serving the public, they are primarily motivated by self-interest – just as in the private sector.

In the private sector, theoretically correct economic decisions are usually positively correlated with actual behavior. In the public space, there is a gaping chasm between the correct economic decisions and the actual decisions made by politicians, bureaucrats and voters. Public choice economics explains this chasm.

Voters are Incentivized to be Ignorant

Consumers in the private marketplace make well-informed decisions because they are directly impacted. If they make wise choices, they benefit, while they bear the consequences of poor choices. Not so for consumers in the public domain where voting lacks a nexus to outcomes. Most voters are ignorant of the positions of their politicians – apart from those pertaining to a few highly publicized issues. The direct impact of casting a well-informed vote is nil, and voters behave rationally when they act in accordance with their incentive to remain ignorant.

Politicians are Incentivized to Waste Money

There is no direct benefit to a politician to spend public money wisely; in fact, the incentive is to waste money. Interest groups provide large campaign donations and various other perquisites in exchange for actions that benefit them at the expense of taxpayers. Special interests benefit greatly, while voters are ignorant or harmed only marginally. A good example is sugar subsidies. A small number of sugar producers share $1 billion in subsidies, while it costs consumers only $30 each per year in higher prices – in effect a tax on sugar of which the consumer is ignorant.

Bureaucrats are Captured by Special Interests and Rent Seekers

Bureaucrats have no dog in the hunt. Those with a strong interest in the actions of a government agency will “capture” the agency’s bureaucrats along with politicians who oversee the agency. They frequently accomplish this indirectly via lobbyists. They capture agencies with emoluments and future employment or consulting once the bureaucrat retires or the politician loses reelection. Rent seekers such as public sector unions extract value from government without giving value in return. Moreover, the risks and rewards of government do not attract talented hard-working people.

Reelection Trumps All Other Considerations

The motivation of politicians to win reelection supersedes all else including their duty to voters and to the country to do the right thing. Their personal incentives are grossly misaligned with the public interest.

Politics is extremely short sighted

Politicians’ time horizon extends only as far as the next election. They make taxes as opaque as possible and have a strong bias toward debt financing; this allows them to spend without voting for more taxes. That explains why there have been deficits in 57 of the last 62 years. They enact unfunded promises and immediate benefits while hiding, deferring and borrowing the cost as far into the future as possible.

No Incentive to Cut Losses

In business the culture is quickly to recognize and to cut losses. In government, failed programs develop a constituency – both inside and outside of government – and never are cut. The government culture is to tax, regulate and then subsidize.

Kicking the Can Down the Road

Difficult political decisions are deferred for as long as possible and preferably until politicians are no longer in office. This turns once manageable problems into catastrophes. The poster children for this are Social Security and Medicare. Even worse is the inevitable debt crisis. Politicians are managing an impossible feat: they literally are bankrupting the most prosperous nation in human history.

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Government is unalterably contrary to human nature, which is unchanged since the dawn of time. People don’t suddenly become beknighted when they enter politics. Elected officials are not benevolent, dispassionate actors seeking the best possible outcomes for those they govern. They are motivated by self-interest.

Government incentives are pathologically misaligned. Government is awash with waste, fraud, abuse, corruption and unintended consequences – not to mention climate madness, identity politics and DEI wackiness. Public sector economics shows why government failure is systemic, structural, deeply rooted and incapable of reform. There is no way to fix government and it is futile to try.

Government cannot be improved. There is only one way its myriad pathologies can be reduced. That is to drastically shrink its size and scope. Even then, government will be a failure – just a smaller failure. We do not need more government, smarter government or even wiser government; we need less government.

© 2024 George Noga
More Liberty – Less Government, Post Office Box 916381
Longwood, FL 32791-6381, Email: mllg@cfl.rr.com